When Oil Helps and When Oil Hurts

Is the resource curse inevitable in oil states? There are many countries that have clearly benefited from oil both economically and politically, such as Canada, the U.S. and Norway. However, I would like to point out that these developing countries had robust democratic traditions and institutions firmly in place before the extraction of oil, which is in contrast to many developing countries that discovered their mineral wealth right around the time of independence, e.g. those of sub-Saharan Africa. These nascent states were too weak and lacking in leadership to be able to manage their mineral endowments properly while the well-established states had the democratic checks necessary to avoid such problems. Basically, because the general goal of democracy is to stop bad behavior, strong democracies put checks on the use of oil revenues that weak democracies don’t. Since commercial drilling started in 1958 and independence came just two years later, you could say that Nigerian oil arrived too early to be helpful. This means that natural resources coming after democracy can be helpful and natural resources coming before democracy can be harmful, more or less. Does this argument hold up?

For a fascinating visual representation of wealth in various countries, and to see which of those are democracies, take a look at this Wealth Distribution Map from Global Finance magazine.